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Inflation rate leaves consumers in the dark

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A third of spending is not taken into account by Government measures of inflation, the Alliance Trust claims.

The Government’s headline inflation rate only includes 70% of goods and services in the average shopping basket, according to figures released by Alliance Trust Research Centre.

Shona Dobbie, head of Alliance Trust research centre, said: “People reviewing their finances should be aware that the official inflation rate may not reflect the rate at which their own costs are changing.”

For example, council taxes and rates, which are not included in the CPI, jumped by an average of 134% between 1993 and 2007. This compares to a 46% rise in the headline inflation measure over the same period of time and an increase in earnings of less than 90%.

The current measure of inflation, the CPI, was adopted as the primary measure of inflation after December 2003, does not include as many housing costs as the previous measure, the RPI.

Dobbie continued: “Our new measure, Alliance Trust’s quarterly Financial Reality Index, includes all the factors affecting households – from budget, including inflation, to the economic backdrop and pressures on assets and wealth.”

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